3. Firm 1 and firm 2 currently both have a constant average cost of 2 per unit. Firm 1 can install a new technology with

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3 Firm 1 And Firm 2 Currently Both Have A Constant Average Cost Of 2 Per Unit Firm 1 Can Install A New Technology With 1 (33.63 KiB) Viewed 27 times

3. Firm 1 and firm 2 currently both have a constant average cost of 2 per unit. Firm 1 can install a new technology with an average cost of 0 per unit; installing the technology costs f. Firm 2 will observe whether or not firm invests in the new technology. Once firm l's investment decision is observed, the two firms will simultaneously choose output levels q1 and q2 as in Cournot competition. Thus, this is a two-stage game. To define the payoffs, we suppose that the demand is p(q) = 14 - where q = 91 +92 and that each firm's goal is to maximize its net revenue minus costs. Firm l's payoff is then (12-(qı+92): if it does not invest, and (14-(91+92)91-f if it does; firm 2's payoff is (12-(91 +92)92. (10 points) Find all subgame perfect equilibria. (Note that the solutions may depend on the parameter value of f.)